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Follow up on payment systems - RadioShack and Western Union’s money-transfer offer

In a recent post, I noted that many companies are trying out different ways to change how we make payments, with American Express having decided that apparently key fobs is not the way. Just today, Western Union and RadioShack announced a new payment program in which special purpose phones can be used to transfer pre-paid cash amounts of up to $200 within Western Union’s network. Just as we would advise, the national rollout begun today (April 1) follows a year of testing the phones in locations that have large numbers of ‘unbanked’ folks who might be interested in transferring funds to people back home, let’s say.

While I haven’t studied the concept in detail, a few elements of the business plan strike me as slightly problematic. First, people have to go to a RadioShack store and sign up for a Trumpet pre-paid phone (Trumpet being the wireless company who creates the payment service stream). They can’t use cell phones they may already have, which creates a sunk cost problem. Then they have to pre-pay for the service and load the phone with the money to be transferred. For people who are cash-strapped, that may be a lot to swallow in one chunk. The recipient has to have a compatible system or else use the Western Union network. And many obstacles to success will be internal to Western Union – as in, creating an entirely new kind of business that conceivably threatens their existing ways of working.

The good news about the plan is that if it does get adopted by large numbers of people, it could increase the convenience of transferring money. In addition, I would expect the service to evolve so that those without a banking relationship or credit card can enjoy many of the conveniences those have to offer. And, eventually, such technologies (when freed from a single phone platform) could be highly destabilizing to established remittance markets right in their core business.